ACCOUNTING RULES
Financial derivatives and hedging instruments
The derivatives used by the Group to hedge its exposure to interest rate and exchange rate risks are mainly forward exchange contracts, futures and interest rate swap contracts IRS and CCIRS transactions hedging the exchange rate and interest rate. Such derivatives are measured at fair value. Derivatives are recorded as assets when their value is positive and as liabilities when their value is negative.
Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting and the ineffective portion of hedging relationships in cash flow hedge accounting are charged directly to the financial result for the financial year.
The fair value of forward foreign exchange contracts is determined by reference to the exchange rate at which the contract is entered into and current forward rates calculated based on market data. The fair value of interest rate swap contracts is calculated based on yield curves.
| At December 31, 2021 | ||||
| Recognised in profit or loss | Recognised in other comprehensive income | Assets | Liabilities | |
| DERIVATIVES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Currency forwards | (102) | – | 4 | 6 |
| Commodity forwards | 3,018 | – | 47 | 1 |
| Commodity SWAP | (126) | – | 22 | 31 |
| Contracts for purchase/sale of coal | 9 | – | 19 | 11 |
| IRS transactions | – | – | – | – |
| Options | – | – | 16 | – |
| HEDGING DERIVATIVES | ||||
| CCIRS hedges | (44) | 82 | 110 | – |
| IRS hedges | (119) | 579 | 203 | – |
| Currency forward – USD | – | 3 | 3 | – |
| Currency forward – EUR | – | 93 | 485 | 34 |
| Other assets carried at fair value through profit or loss | ||||
| Investment fund participation units | 1 | – | 30 | – |
| TOTAL | 2,637 | 757 | 939 | 83 |
| current | 575 | 82 | ||
| non-current | 364 | 1 | ||
| At December 31, 2020 | ||||
| Recognised in profit or loss | Recognised in other comprehensive income | Assets | Liabilities | |
| DERIVATIVES AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Currency forwards | (117) | – | 3 | 4 |
| Commodity forwards | 231 | – | 11 | 4 |
| Commodity SWAP | – | – | 11 | 13 |
| Contracts for purchase/sale of coal | (89) | – | 17 | 18 |
| IRS transactions | – | – | – | – |
| Options | 11 | – | 16 | – |
| HEDGING DERIVATIVES | ||||
| CCIRS hedges | 37 | (7) | 64 | – |
| IRS hedges | (73) | (261) | – | 385 |
| Currency forward – USD | – | (1) | – | 1 |
| Currency forward – EUR | – | 656 | 381 | 23 |
| Other assets carried at fair value through profit or loss | ||||
| Investment fund participation units | (4) | – | 52 | – |
| TOTAL | (4) | 387 | 555 | 448 |
| current | 423 | 63 | ||
| non-current | 132 | 385 | ||
Commodity and currency forwards
Commodity and currency forward transactions mainly relate to trade in CO2 emission allowances and coal sales. The Group applies hedge accounting to recognise forward foreign exchange transactions.
A rollover of commodity forwards was recognised in the current period. Details of this event are presented in note 7.3 of these financial statements.
Options
PGE S.A. acquired from Towarzystwo Finansowe Silesia Sp. z o.o. a call option to purchase shares of Polimex-Mostostal S.A. The option was valued using the Black-Scholes method.
Coal swaps
In the current period, PGE Paliwa sp. z o.o. in order to secure commodity risk related to the price of imported coal executed a number of transactions to hedge this risk using commodity swaps for coal. The number and value of these transactions is correlated to the quantity and value of imported coal. Changes in fair value are recognised in profit or loss.
Purchase and sale contracts with physical delivery of coal
PGE Paliwa Sp. z o.o. values all contracts for the sale and purchase of coal with physical delivery in the trader-broker model at fair value. As at the reporting date, the Company held contracts that would be performed in 2022.
IRS transactions
PGE S.A. executed IRS transactions to hedge interest rates on credit facilities with a total nominal value of PLN 7,030 million. Before beginning to repay the principal on certain credit facilities, the current nominal amount of credit-hedging IRS transactions is PLN 4,654 million. To recognise these IRS transactions, the Company uses hedge accounting. The impact of hedge accounting on the revaluation reserve is disclosed in note 20.3 of these consolidated financial statements.
CCIRS hedges
In connection with loans received with PGE Sweden AB (publ), PGE S.A. entered into CCIRS transactions, hedging the exchange rate of principal and interest repayments. In these transactions, banks-counterparties pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. In the consolidated financial statements, a relevant part of the CCIRS transaction is treated as a hedge of bonds issued by PGE Sweden AB (publ).
To recognise these CCIRS transactions, the Group uses hedge accounting. The impact of hedge accounting on equity is presented in note 20.3 to these financial statements.
Investment fund participation units
As of the reporting date, the Company holds participation units in three sub-funds of Towarzystwo Funduszy Inwestycyjnych Energia S.A., whose value as of the reporting date amounts to PLN 30 million.